>> rose: welcome to the program. the president made two important national security nominations today. one is secretary defense. he nominated former senator chuck hagel. the other c.i.a. director, he nominated counterterrorism expert at the white house john brennan. we'll talk about both of them with david sanger of the "new york times" and mark halperin of "time" magazine. >> both mr. brennan and chuck hagel are coming in at exactly the moment when the light footprint strategy has begun to hit some real resistance. the u.s. has not figured out how to intervene in syria in an effective way.

it's obviously run into some difficulties in the end of its cyber campaign for now in iran or at least we think it has. so the question is whether or not these two men working together can sort of forge some very new and different ways. >> one of the reasons people have liked chuck hagel over the years, a lot of reasons reporters like him, a lot of reasons his supporters like him is he's a free-speaking guy. he's iconoclastic. he's willing to say things and think about things in a way that's outside not just party orthodoxy but out of the mainstream foreign policy establishment. >> rose: we conclude with a conversation about politics and economics and debt ceilings and fiscal cliffs and sequestration with david leonhardt of the "new york times" and austan goolsbee, former chairman of the president's council of economic advisors. >> there's much less of a sense in obama that he can get the grand bargain. although he's still trying. he and boehner both are. i think he's much more cynical

about what republicans will agree to and i think he's come to think that many hem won't do anything with him. >> rose: national security, politics, and the economy when we continue.

captioning sponsored by rose communications from our studios in new york city, this is charlie rose. poop announced his picks for two of the most important national security positions earlier today. for secretary of defense he nominated former republican senator chuck hagel.

he chose counterterrorism advisor john brennan to head the c.i.a.. >> chuck hagel is the leader that our troops deserve. he is an american patriot, he enlisted in the army and volunteered for vietnam. as the young private and then sergeant he served with honor alongside his ownrother. he'd be the first person of enlisted rank to serve as secretary of defense. one of the few secretaries who've been wounded in war and the first vietnam veteran to lead the department. a 25-year veteran of the c.i.a. god knows what our national

security demands. intelligence that provides policymakers with the facts, strong analytic insights and the keen understanding of a dynamic world. given his extensive experience and travel which is include, by the way, traveling through arabian peninsula where he camped with tribesmen in the desert john has an invaluable perspective on the forces, the history, the culture, the politics, the economics, the desire for human dig anyty driving so much of the changes in today's world. >> rose: joining me now for a conversation about the president's announcement, a look at his evolving foreign policy and national security policy, mark halperin of "time" magazine and washington david sanger of the "new york times." david, let me begin with you and talk about what does this -- these choices say about the president and how he sees the challenge of national security over the next four years? >>ell, charlie, i think that

in the selection of john brennan, who, as you said, has been his counterterrorism chief and many people believe has essentially run the entire intelligence community, you have seen the president choose somebody who is central to the president's light footprint strategy. that is the strategy of not getting involved in the world through these big attritional wars in which we send 100,000, 200,000 troops into iraq and afghanistan but instead the man who helped shape president obama's concept that with a combination of drones, cyber warfare, special forces you can actually go out and defend america's interest without staying inside countries, without trying to rewire them. but i think that you'll find that both these men, both mr. brennan and chuck hagel, are coming in at exactly the moment when the light footprint strategy has begun to hit some real resistance. the u.s. has not figured out how

to intervene in syria in an effective way, it's obviously run into somiffilties in sort of the end of its cyber campaign for now in iran or at least we think it has. and so the question is whether or not these two men working together can sort of forge some very new and different ways. for hagel it's a particularly complex issue because he's got to figure out a way to cut the pentagon budget, something he has been very clear has been bloated. this is something that don rumsfeld tried and failed to do. it's something that bob gates tried and failed to do in any serious way. and now, given the budget pressures, this is going to be the moment for performance. >> rose: a couple of points, i guess. rumsfeld would argue that we had a big war came along and bob gates would argue that in the end he did cut it somewhat. >> somewhat. but if you look at the total national security budget,

charlie, which would be not just the pentagon but also the intelligence agencies, homeland security, it's basically doubled since the 9/11 attacks. >> rose: and weapons systems you don't really need in the judgment of many people other than those pele who represent the districts where they're located. >> leftovers from the cold war and, remember, the president himself came in supported by chuck hagel on this point with the thought that there was a moment here to really build down on the nuclear force. and so far they have not been able to do that except some modest cuts when they passed the start treaty with russia early in the president's time. >> rose: talk about this from the president, what you know about this president, the victory that he won, and how he wants to choose people around him for the second term. >> well, the rule he didn't violate with either of these picks is he didn't go outside his comfort zone to people he's not close with. he's very close with these two guys, senator hagel with their

time together in the senate and their work with with senator hagel on the intelligence advisory board and brennan a very close advisory to the president and the white house. so he's got two people he's comfortable with. but clearly david's absolutely right. they're not the kind of expansive role for an american military overseas. they're very much in line with the president's view of a new kind of warfare. i don't think they're people who are going to try to take over foreign policy. this president runs his foreign policy with tom donelan national security advisor, joe biden, dennis mcdonough out of the white house to a large extent, larger than most presidents have since back to nixon. and i think both chuck hagel and brennan will be part of a team but very much in the mold of taking orders on the big decisions from the white house. with senator hague until he's confirmed really focuses, as david said, on managing the building, trying to find a way to rorm the mission, post-9/11 world and a world with more

orientation towards asia. but clearly with a premium put on defense cuts and if the sequester isn't worked out, maybe defense cuts right away. >> rose: hagel was a businessman before he became a politician. does she management skills? >> that's an open question. people are just now deviling into the business career. it's certainly there's -- look, there's almost no management challenge in the country like managing that building. there's complexities involved. frequently people use the metaphor of how difficult it is to turn an aircraft carrier. there's a lot of aircraft carriers you have to turn associated with that building. so i don't know that anybody is fully up to the task but as he said in his remarks earlier today, the shoes he's filling-- secretary gates, secretary panetta-- those guys if you took the whole country and said who's best qualified to put a budgetary focus on the building while trying to keep it where it needs to be, those guys are good. and neither of them made as much progress as people would like to see. i'd say if there's a question for me about senator hagel

that's one of the big ones is can he do that function? does he have the kind of managerial skill, the interpersonal skills within the building and on capitol hill, particularly with republicans who will be the ones most concerned that too much is being cut. does he have the skills? and if he goes through a confirmation, which we expect, can he emerge from that if confirmed to negotiate with republicans not just in the senate where he faces confirmation but in the house where he says now i'm your secretary of defense and you're going to work with me to figure out how to cut systems not just in individual districts but hawks in the house that don't in their view impact national security. >> rose: what will be the toughest thing for him to have to overcome in his hearings? >> i think before the hearing is the courtesy calls. it's stunning to see -- take just the guy's resume and take the fact that not too long ago he was a republican senator, the vitriol coming from republican senators is extraordinary and i think he needs to go up there, something susan rice was not able to do when she was in play. >> rose: she went up there but

it didn't work. >> i think he needs to emerge from those meetings with at least a different tone. i think senator mccain is extraordinarily important. he supported senator mccain in 2000, didn't support him in 2008. senator schumer on the democratic side is important and mitch mcconnell the republican leader are important. there will be some republican senators opposed. he needs to hold the democrats in advance of his hearings and he needs to come out of the hearings, again, with a solid democratic support and a lot of republican support. i don't think he's going to get an overwhelming vote from the republicans, at least right now. doesn't feel that way. but i think he'd like to get 20 of them, 25 of them. that would be at this point probably best case for the white house. >> rose: but is the republican opposition to him primarily over some policy position he has about america's engagement overseas and the end of it, as david spoke to, or is it about what he has said or what they believe he may believe about israel and iran?

>> my sense is that it's mostly about israel and iran and that they believe that as secretary of defense who says the kinds of things he says, not so much -- not exclusively the policy positions. but one of the reasons people have liked chuck hagel over the years, a lot of reasons reporters like him and his supporters like him is he's a pretty free-speaking guy. he's iconoclastic. he's willing to say things and think about things that is outside not just party orthodoxy but outside what the mainstream foreign policy establishment thinks and that for a lot of republicans to do that on israel, to do that on iran, for someone who's going to be running the pentagon i think they find that alarming. and there's other things. they resent him because he said nice things about the president. they resent him becse he dors bob kerrey for senate. >> rose: and was against the iraq war. >> there's all those issues. >> rose: did the president have any choice after he floated the name because of what happened to susan rice and he couldn't afford to be have -- to back

down twice? >> certainly the chattering class feels that way and i think it's also the case that this president, like his predecessor, doesn't like being told by his advisors "don't do this because it will pick a fight." i think he does feel like he should do what he wants to do. i actually think-- leaving the merits of senator hagel aside-- i think it's kind of a risky choice even if he's confirmed because the president has a lot of business to do with republicans over the next two months, three months on not just the budget which is obviously biggest thing but on crime, on immigration, on energy. and it's hard to see how he comes out of this process with better relations with republicans on capitol hill after this process. so, again, whatever the merits, whatever the political imperative of being seen not backing down, i think this is in the history of the next couple months is not going to be something that works in his favor. >> rose: he me understand what it is about what he has said about has created think

opposition to him? >> well, i think mark got at one of the elements here which is that while it is about israel and iran, as you say, charlie, it's also about iraq. i mean, you have to remember that chuck hagel bailed out on the bush administration and on the republicans on the iraq war far earlier than almost anybody else in the republican party, at least in the senate at that time. and there were a lot of bruised feelings in that time. and people can't say that now because no one wants to step out and defend a war that today looks like a lot worse judgment than it may have the day that they went in. and hagel had voted for the iraq war resolution. but i think there's a lot of residual element there is that have been stilling over into the arguments now about israel and iran. on israel i think that the key element for chuck hagel was that he has -- while he has voted for almost every package of support for israel, he has gone back and

questioned whether the israelis are making the right judgments in their own long-term interests on settlements, on how they've dealt with iran, on how -- on many ways of dealing with the palestinians, everything from building a wall to how they allow the palestinians to move in and out of the territories. and he has not simply taken the israeli position. and i think that that has created a fair bit of attention. iran is a more complex case, chare. and it's complex because chuck hagel essentially does not believe that unilateral sanctions are the way to deal with iran, north korea, cuba, any of the other adversaries who have caused the united states so much hard ache over so many years. he was one of only two senators who voted against the iran/libya sanctions act in 2001. it passed 96-2. the other was richard lugar

who's not returning to the senate this year. hi essential argument has been that you need to engage and not to sanction. he sounded a lot like president obama sounded in the 2008 campaign. but the obama position has evolved considerably. and today unilateral sanctions-- as you and i have discussed on this show many times before-- are the key element apart from covert action to putting pressure on the iranians to come to the bargaining table. and it hasn't worked yet in any serious way. i think as somebody at the white house said to me the other day "you're going to see chuck hagel embrace the president's policy pretty wholeheartedly when the confirmation hearings happen." but he is clearly a skeptic and he's also been a skeptic about the utility of military action-- as is the president. the problem is that many believe that you need to be able to convince the iranians that this president is willing to take

military action if negotiations fail. it's not clear that as secretary of defense mr. hagel will be able to do that convincingly. >> rose: why can't the president do that? >> well, the president so far has not been convincing in it. >> rose: even though he has said it. >> he has been careful. he has said "all options are on the table." he has said "we will do whatever we need to do to stop iran from achieving a nuclear weapon." he's been very careful not to say what the israelis have said, which is that they would not allow iran to obtain a nuclear weapons capability and this was something that even tripped up secretary panetta a few times. and it's an important distinction because the iranians are very close to a capability. they may be a long wayrom a weapon. so the question is where do you draw these lines and how much pressure-- overt and covert-- do you put on the iranians? i think that's going to be a very big subject of the confirmation hearings.

>> rose: so here's my question, then. are these questions for the secretary of defense or are these questions for the president? i mean, that's who makes these big decisions like this. it's the role of the secretary of defense to be able to carry those things out, is it not? >> that's absolutely right. and, you know, the president has not answered a large number of questions about iran. he did a little bit in the debates but it's a policy that so far they've kept pretty well under wraps. except for the sanctions element of it, the part that mr. hagel was most skeptical of. of course, the other big part of it was olympic games, the covert program against the iranian nuclear program, the cyber program. and then there's been a very big military operation just to secure the persian gulf and keep the iranians from acting there. but you're right. the president is going to have to get out on that se of it and be conncing and my own sense is that the president's going to have to come out and be very convincing and very public

with whatever kind of diplomatic deal they offer the iranians in the next month or two. because if he does this quietly, the iranian people are never going to know that the sanctions could be lifted over time if iran took a series of steps and the president, many believe, is probably willing to allow them to keep some kind of enrichment capability, a modest kind. >>ose: befor we get too far, let me move to brennan. it's clear sailing? any reason to doubt that he will not be -- serious questions will be raised about him? >> there have been some questions raised, but most of them have been from the left and not from the right. senator mccain is one of the few people already raising questions based on the enhanced interrogation techniques. but he's extraordinarily well-respected. i would -- unless something comes up, i would imagine he would be confirmed quite easily. >> rose: he's in the c.i.a. so -- >> yeah. and popular the. one of the argumentshey'

making for chuck hagel is that he'll be popular in the building with the enlisteds because he himself served as an enlisted man. that may be true. but there's no doubt brennan has an extraordinary constituency at the c.i.a. and that will certainly help. >> charlie, something i was go ting-to-just add about mr. brennan, who's a fascinating figure the obama white house and really had been more powerful than any counterterrorism chief than i can ever remember. in fact, more powerful than most white house staffers that i could ever remember. i think this is going to be a trickyransion for a couple of reasons. the first is that mr. brennan has been deeply involved in the formulation of policy. and at the c.i.a., he is essentially supposed to be barred from being involved in policy, he's just supposed to give the intelligence and the analysis. the second is that mike mor rell who stood up with him in the white house at the east room today and i went over the the announcement it was quite touching to see how mr. morrell,

who had been the other contender for job introduceed mr. brennan and said much about him. but i think if you ask people inside the agency, mr. morrell was very much, i think, their sort of home favorite because he had come up out of the analytic division and has been sort of a calming force in his time there. so it's not entirely clear to me that this is going to be a very easy transition, or as easy as you might think given mr. brennan's 25-year history at the c.i.a., including as the station chief in riyadh. >> rose: john kerry. does he have significantly different views than the president or mr. brennan or mr. hagel or mr. donelan? >> you know, it seems to me that john kerry has been much more in the mainstream and sort of closer to where the administration has been. i think he has gone out as a

troubleshooter for the administration on several occasions. >> rose: syria, for example. >> pakistan, syria, other places. and i suspect that president obama is not gng to see in senator john kerry as much of an independent operator as we saw with, say, secretary clinton who pressed very hard with bob gates for a much more muscular expansion of the surge in afghanistan. she pressed very hard for the libya intervention. and i'm -- it's not clear to me yet that secretary kerry, if he is confirmed, would necessarily press as hard as she did on those issues. he may well surprise us on that. >> rose: she has high public marks for wh she did as secretary of state. among the foreign policy people, what do they look at as her principal accomplishment? >> i think that the public marks

have been a little bit higher, charlie, than what you hear from within the foreign policy community. that's usually the case in these cases. certainly when she went around the world she was a star in her own right. she certainly stood for a number of women's rights issues that are near and dear to her heart. but it was interesting out of this whi house to e that policy with saudi arabia, often with china-- not always but sometimes with china-- almost always with pakistan were run very much out of the white house and that secretary clinton, i think, intervened at very critical moments, including during the arab spring on some major issues but i think there is some question about whether or not she changed the track of the obama doctrine. >> rose: what happens to susan rice? >> well, she's still e ambassador the united nations and extraordinarily influential. as long as tom donelan stays as the national security advisor these other positions are very

important, people have input, but foreign policy is really run out of that not-so-grand office but perfectly grand west wing office. so susan rice i think will continue to do the job the way she's done it. i suspect if tom donelan ever moves on that susan rice would be a leading contender for that job and have the ability to do what tom donelan has done, which is to consolidate an enormous amount of authority and decision making. >> is there an emerging-- you may have touched on this at the top, david-- obama doctrine that might come out of this next four years? >> well, if the doctrine in the first four years, charlie, was that the united states will act unilaterally when its direct interests are affected-- think of the bin laden raid-- but that it will only act in concert with others when its interests are far more general-- think of the libya invasion where the president insisted that nato and the arab leae take the lead,

or think about syria where everyone has been pretty well paralyzed for the past year and a half nearly two years now-- then the president has insisted that the u.s. will not act as the policemen of the world. and when i suggested that that light footprint strategy and that doctrine are beginning to run to their limits what i meant was that there are places around the world where people

with politics and economics. after several rounds of negotiations, congress averted the fiscal cliff by passing a last-minute deal on january 1. the compromise allowed tax rates to rise only on affluent americans while temporarily suspending across-the-board spending cuts. many questions remain over how congress will achieve the proper balance of cuts and revenue. house democratic leaders insist revenues will be needed. the deal also did not tackle the impending debt ceiling, a debate that will likely consume congress in the months ahead. joining me from washington, david leonhardt, he is the washington bureau chief of the "new york times." from chicago, austan goolsbee, a professor at the university of chicago booth school of business and previously chairman of the president's council of economic advisors. i'm pleased to have both of them back on this program.

david, let me begin with you and tell me exactly where you think we are having that january 1 up to the last minute deal. what is the order of business for the executive branch and the legislative branch to do something to develop some sense of predictability and certainty and a road map for the future. >> well, we just missed a pretty substantial opportunity thief happen because i think the bigger deals that were on the table that president obama and speaker boehner were talking about would have removed some of these up coming deadlines, like the debt ceiling. and they didn't get one of those bigger deals. instead they got something in which obama won a pretty significant tactical victory. almost all the policies are vastly more to his liking than the republicans. but he didn't get any of these other deadlines taken off the table and that's a big risk for him cause now the republins have the potentialf using the debt ceiling and possibly the sequester, these automatic budget cuts that will start taking effect in march, to

really force big spending cuts and if obama doesn't agree potentially it will cause him substantial economic damage. >> rose: austan, i've talked to people who are wonderful negotiators and they always say to me "you've got to give the other guy something, it's never, never i win-you lose." did the president make a mistake by not at least giving republicans some spending cuts that they would have been able to take home? >> i d't know if i totally agree with that inhis circumstance in that they -- the democrats moved on what level the higher tax rates were going to apply to. it strikes me that we've got a weird negotiation which is -- let's call it a multiyear negotiation where i think we all hand in our heads two years ago last year and even coming into now that there would be some negotiated grand bargain with some revenues and some cuts. and instead it seems like the way it's playing out is the original debt ceiling fight, we got a bunch of cuts with no

revenue. now, in this one we got a bunch of revenue with no cuts. now we'll come into the third round. after a year and a half of negotiating we may have a grand bare gain, it's just not a grand bargain that they actually struck all at once at the same able to. >> rose: so where do they move to now. the debt ceiling extension is, what, a month or so off. david, help me on this. is that what they have to address first or is this something else that must be addressed before you get to the debt ceiling extension question? >> the debt ceiling is likely to come first. the funny thing is at this point to some extent there aren't any external deadlines they absolutely have to meet. these are all created by washington. historically the debt ceiling was not an occasion for a big policy change. it became one in 2011, the republicans successfully made that happen. but they could easily extend the debt kreiling the way washington has in the past. in some ways the bigger thing is the sequester. it was supposed to be january 1, they pushed it back to march 1.

substantial cuts. not overwhelming but substan tomorrow domestic programs and the military. most people don't want them take effect and the question is can they come up with something else that would bring down the deficit instead of across-the-board sequester cuts scheduled for march 1. >> rose: i watched over the weekend the talk shows and mitch mcconnell, the leader of the republicans in the senate said the tax question is off the table. we've dwelt that so we only will deal with spending now. >> it's funny to watch everybody taking different things off the table. obama says i won't negotiate over the debt ceiling citing history, accurately, that it hasn't been an occasion for big policy changes. mcconnell is saying he won' negotiate er taxes. i think in the end we will have negotiating over all of these things and each side will decide what they were negotiating on and what they weren't and fly to say that publicly. realistically we'll have a negotiation over nearly all of these things. >> rose: do you accept this idea austan, that there was a real missed opportunity by the grand

bargain as you talked about but even most recently dealing with the fiscal cliff to really make a deal that could have put a lot of this stuff behind us? >> in a theoretical way maybe so. but i just think what we've seen again and again as we come down to the wire is the fruit is not yet ripe to actually get the deal done. so they miss an opportunity. but what nobody can answer is if you had an actual proposal that was modeled on simpson-bowles which was some significant revenue, some significant entitlement cuts, some strong freezes on discretionary spending that added up to something like $4 trillion over ten years, would that will be acceptable, a, to the republican party that's been the biggest barrier but would it be acceptable to the democrats in congress, too? and we sort of haven't gotten an answer to that and we haven't

fully worked it through because nothing has -- nothing has really put that front and center you must deal with it right now. at each stage we've backed up to the tactical, it feels like, of, well, who has the negotiating power at this moment and they just did whatever was the path of least resistance. so it's not -- to your origin gnat question, charlie, we haven't resolved any of the uncertainty. if you were hoping to resolve that, this would be a big disappointment. in away they avoided the fiscal cliff but in a way they didn't, we just put it off for two months. now we'll have a big argument about the sequester and it feels like somewhere in here is lurking another big fight over a government shutdown, i think. >> and charlie there's a -- >> rose: go ahead, david. >> there's an important underlying point in what austan is saying. i think a lot of your viewers are probably saying "why can't they just get a deal? why can't they be sensible?" well, some of this is lack of

leadership. some of it is politicians not wanting to make tough decisions. but i think more of it is that the voters aren't in favor of a deficit solution. a deficit solution involves some combination of higher taxes, not just on some other guy, but you. and real cuts to medicare and social security. and when you ask voters which of those they're in favor of them, a majority of them aren't in favor of any of them and i think that's driving the political difficulty here, that the reward -- there aren'tolical rewards at this point for courage because courage means tax hikes or benefit cuts that the united states population doesn't really want. >> well, it seems to me also -- i think that's pretty insightful. and in particular, look, i've made fun of the dysfunction of washington as much as anyone. but there is one sense in which this isn't the fault of the politicians, this is our fault, the voters. and that is if you go look at the surveys you've got something like 75% of people say they agree with republicans that spending is out of control and must be cut.

andyou've got 85 of people saying they don't consider entitlements to be spending and they will punish anybody who proposes cutting them. and as long as voters hold both those ideas in their mind at the same time you can see why washington can't come to an agreement. they each think they've got the wind of america at their back and that's what i mean. we've got to -- not to mix metaphors here but the fruit has got to ripen a little bit and american voters have to come to an idea in their mind. do they want to do a balanced plan. do they want to do an unbaplsed plan? do they not want to do a plan? the politicians are basically looking at them saying the people behind us, should we go ahead or what do you want us to do? >> rose: so are you suggesting that what has to happen is for the american public has to decide when they will demand action and the kind of action they're demanding and only then the political leaders respond?

>> with the emphasis on the kind of action, in my opinion. i'm interested in what david thinks about that. peop have got to come to a view as happened with the government shutdowns in the clinton administration. the two sides back then, if you remember, sounded very much like the sides do now where each say they're taking this off the table, we're never going to agree to that. and it was only after a few government shutdown when the american people compared the two budgets and said we like the clinton budget better than the gingrich one that they rapidly came to some agreement along those lines. >> rose: david? >> well, we don't to come to a deficit solution right now, right? the rest of the world remains willing to lend us money at extraordinary low rates so we're okay for a while. but i agree. i think ultimately we need to come to a deficit solution because in the long term our fiscal situation isn't sustainable and one of two things will cause that to happen. what you said, charlie, the idea that the american people are give politicians a sense of what

have they actually want. what mix of things, so then you won't be punished for trying to solve it. the second one-- and no one is rooting for this-- is a financial crisis in which the country has to deal with it quickly. luckily we don't seem to b closto that crist this point. >> rose: it seems a demand for leadership there that someone steps forward and talks common sense to the american people and they respond to that and that becomes the voice of reason. >> i agree. what's tricky tse that common sense doesn't have to sound good on first blush, it has to be able to overcome the criticism it gets from the person who says "this guy wants to raise your taxes, this guy wants to cut your medicare or your social security." and i think people are still too willing to accept the criticism of the common sense for the common sense to win the day. >>ose: stan? >> what i would add to that is the following kind of behaviors that you've seen over the last two or three weeks are not very conducive to getting such a

leadership-based deal. and that is if each side feels like some kind of private offer will immediately be taken to the press and trumpeted of "look, they just proposed x, y, and z" it won't work. and you saw that some on both sides but particularly on the republican side that if in the private negotiation it is administration says well, what if we contemplated giving you x for y then they came forward and said the president just proposed the chain weighted c.p.i. that would cut social security benefits. or now you saw speaker boehner say "the president says we don't have a spending problem." if it's happening in public it's not going to work. >> rose: seems to be one of the big problems. everybody makes a statement for reporters and therefore in the private negotiations they're no longer private negotiatns. let me just twhak the speaker said according to the "wall street journal" did the

president say we don't have a spending problem and did he mean it? >> what i imagine happened-- i wasn't in the conversation, but i imagine the president was talking about discretionary spending. if you look at discretionary spending which is what many republicans are saying, insinuating the problem is, discretionary spending is about the lowest level as a share of g.d.p. that it's been since eisenhower was the president. that's not the root of ourlong run fiscal problem. the root of our problem is we have an aging population and rising health care costs and we don't the tax revenue to cover that >> i don't think that's what he meant. >> rose: i don't know what he meant but i don't think that's the way mitch mcconnell viewed at what the spending problem is because he said you have to target entitlement, social security, medicare and medicaid that that's what has to happen on the part of the president. that's not suggesting it's discretionary spending. it's structural. >> these are two different people you're talking about.

while they say that, if you remember in the discussions about the fiscal cliff when tim geithner delivers to the republicans the initial offer they don't come back with a counteroffer that says if you want those revenues we want entitlement cuts. they then say to the administration "we want you to propose entitlement cuts so we can turn around and say look you proposed entitlement cuts." so i don't know which it is. i know that in the long ru all the onomists are going to agree what the root of the challenge. is it's the aging of the the population, rising health care costs and we don't have the tax revenue to cover that. it's not based on excessive spending on food stamps. it's not based on discretionary spending. that is not what the problem is. >> rose: david? >> i think it's significant if republicans have decided they want this next round to be about entitlements rather than spending. because there is no solution in

discretionary spending. >> rose: exactly. >> there's not enough money there. >> rose: everything knows that, don't they? i'm surprised everybody doesn't accept that ea anymore. >> i think you're flight a policy expert standpoint but there are a lot of people who view things like foreign aid and the stimulus and other things as a problem. and some people say there's a spending problem and mean that even if mcconnell didn't. but if republicans say look, we want the discussion to be it into entitlements you can have a negotiation about that. it would include things like raising the medicare entitlement eligibility age or cutting benefits for income people. you could have a pretty bstantivbipartisan debate about that. >> rose: does this means this much simpler to do than we imagined? >> simple and easy are not the same thing. we now how simple it is but we know it's not easy at all. so if we start to get into the

discussion about entitlements, if that is what the republicans want to make the spending discussion in some sense at least they're putting the target where it t growth of government is. but the two things that i would point out abt that are first i think it will automatically bring us back to the tax discussion because when we go to the american people they're always going to have to answer the question: look, if we're going to cut entitlements, do you want to cut entitlement this is much or half as much and replace that half of cuts with more revenue on high-income people? that's going to constantly be the discussion behind the scenes. if america favors one versus the other i think any deal will ultitely show that. the second thing that i would emphasize is if you look at -- t entitlement issue it's fundamentally not about the here

and now. and the here and now the economy is pretty much coming out of the dumps and not growing that fast. so the argument made by some that we need to make a down payment of gigantic austerity right now i think that's fundamentally wrong so in the discussion about entiements hopefully 'll get it off of we need to make huge cuts in the year 2013 and put it where it ought to be. >> rose: what do you think about the boehner debt ceiling rule that says every dollar of raising spend willing require one dollar of spending cuts over the next ten years? >> it's legitimate negotiating position but it doesn't have any basis i can n economics. if you followed it, you wouldn't be left with that much of a government. it's not clear to me -- let's step back from the partisan part of this. it's not clear from a standpoint

of good economic policy making why we want to have this debt ceiling thing. you should be having these fights when congress is deciding what money to spend it on not when there's a separate later thing called the debt ceiling. so it seems to me good economic policy making would get away from these debt ceiling fights and by extension get away from the boehner rule it's not like the boehner rule leads you to if you naught in place then we have a well functioning economy. >> rose: austan, do you have a sense whereof the president would be willing to make entitlement spending cuts? >> i don't have that specific other than to observe the social security side is a lot more understandable and a lot easier to look at that is the health care spending side because we fundamentally understand the social security side. it's all about the aging of the population. on the health care side you have to limit the growth rate and economists--on-partisan on

both sides they don't have that great of a sense of how you do that. if it were me i would guess that most discussion would start on social security unless we move into a space which is just kind of choosing dollar amounts and saying we'll only allow health care spending to grow at blank rate. >> rose: what percentage of the problem is health care spending, austan? >> it depends over what time frame. over a longish time frame more than 100% of the problem is health care spending-- if you believe that the health care growth rate will continue. they have this joke on the economics job market when we get the health economics cdidates come through, they say 20 years from now all the candidates are going to be health n health economics because the whole economy will be health. if health continues to grow faster than the rest of the economy pretty soon it's the entire thing. so i think broadly you've got to think that's the more important one but there have been some promising developments over the last couple years.

the growth rate seems to have slowed. we have to figure out if that's permanent or temporary or what. >> rose: is the president different this time a negotiat bause, a, he won an election and, b, he learned from the experience he is had in his first term? >> i think so, i don't know what david would say to that. as i look at this, a, it's clear he won the election and that gave him somewhat of a policy mandate. he was quite specific of what kind of grand bargain he envisioned that it would involve higher tax revenue. if the president hasn't won the election or had been as big a margin i don't think you would have seen the deal looking as favorae to the administratn as it was. i think the president learned from the debt ceiling and what everybody forgets, the extension of the tax cuts at the end of 2010. i think one lesson that the full administration learned was just because you did a deal that was bipartisan doesn't actually

automatically make it easier to make future deals. so they extended it at the end of 2010 in a heavily bipartisan way but that didn't stop us from a really debilitating and horrible experience on the debt ceiling and i thi thatas a backdrop to this negotiation. >> rose: david? >> i think there is much less a sense in obama that he can get the grand bargain. i think he's much more cynical about what republicans agree to and i think he's come to think many of them won't do anything with him because they don't want to be seen doing something with him. i think that's one change. >> rose: is he right about? is it something unique to him that make republicans respond the way they do? >> i don't think it's unique to him but i don't think he's completely wrong. look at the same level of opposition against bill clinton. bill clinton was impeached and set aside whether you think he

deserves to be, the i think he had a very impassioned republican party that is not interested in compromise for now quite some time. so i don't think it's mostly specific or personal to obama although i think there are certain aspects that are specific to him. i think it matters he doesn't need to run again. i think that means he'll be willing to hold out and be tougher in some ways unanimous his first term. one something that his allies need to run again. democrats in the house and in the senate and he has to keep them on his team so he can't say i'm willing to do all these things to break republican opposition to compromise. >> reporter: republicans also say we have a majority in the house, we won our elections too, thank you very much mr. president. >> that's right. >> rose: let me talk about the economy and the growth of the economy. does -- lookt experience europe, look at what britain has done and look at germany and --

is austerity bad for growth? >> in the short term it is very hard to argue that austerity is a financial crisis. you look at any lesson in history, look at us in the depression, the fame strategy of liquidate the farmers. you look at the fact that the new deal-- though not enough-- made a huge difference, look at what the stimulus spending of the war did, looin this cle. europe has struggled with its austerity. the u.s., which has done more stimulus, has done better, china which has done much more stimulus has done better. so in the short term although there are caveats it's hard to argue that austerity has a better record in responding to crises. but you can't simply do deficit spending forever and i think it's hard to argue that some massive government presence in the economy is a good long-term strategy. there's a reason market economies have won out over time so finding that balance is the

tricky thing to a large extent much of the western world is engaged in. >> reporter: austan, do you agree everything he just said. >> wefrg a clarification on the last point of what the hard thing to do is figure out when do we switch from the short run to the long run. in the short run, especially in circumstances like this, austerity is not expansion their. the main mechanism by which people think it could be would be if it would reduce interest rates that you had to pay on your debt. our interest rates are already zero, that's in some sense the root of if problem. so it's very hard to envision a mood dell of the economy in which big austerity would not penalize the growth rate in the u.s. but we know long run looking out ten, 20 years from now that we're going to have to address these issues that come from the aging of the population and what we're trying to figure out is when is it that we should start thinking about long run versus

short run? that's not easy to answer. >> rose: when you look at the growth, what's necessary now to create the kind of growth that's nessary for our economy to be able to deal with the issues we face in start. >> in a way i think it's -- there's an obvious though not easy solution to that. over the ten years preceding the big recession, we got heavily focused on residential investment and consumer spending faster than income and we were very light on export growth. we were very light on capital investment and that's what we have to -- we have to shift to doing more of that. it's liky mean sectors like manufacturing will do better than they have been doing in the recent experience but that transformation involves some retraining of people. involves a painful episode. that's why you can't just go back to what you were doing before and say you can't have

have-shaped recovery. that transformation is what has to happen. >> in the longer term crucial to that is education. one of the important indicators to watch which we don't spend enough time watching is what's happening to the educational attainment of the polation and did it rise in this recession as it did in the great depression when people couldn't find work. there's early reasons to hope that it did though probably not as robust as the great depression when people could go to high school which was free, this time they have to go to college, which is not free for most people. >> rose: austan, looking back over the years from 2008 to 2012 and you left a little bit before that, what would you like to redo and would you consider it wiser to have it politically feasible-- big if-- to add 1.3 trillion stimulus to w no tax cuts? >> i don't know the answer. i thought about the context of what was in the stimulus.

we know that there was some disagreement among economists of are we talking art a short recession or are we talk about a long recession? so there was a bit of a mixture, there was some short run things like chraung and there were longer -- cash for clunkers and then there were longer things. but looking back given that the recession has been quite long lived you would do less of the short-run oriented stuff and shift more of that to the long run. on the broader question of should there have been 30%, 40% of the stimulus in tax cuts? i don't know. we're going to have to find the evidence. i fear we may find the tax cut portion of the stimulus was the least bang for the buck because -- precisely because we cameut of ainancial crisis, people may have tended to use the money to deleverage their own balance

sheet rather than to actually go out and consume and raise consumer spending. anybody who says well obviously we should have made it bigger and done it all spending, the stimulus came down to one vote and all the marginal voters, all the senators that were waivering all of them-- democrats and republicans-- said they wanted more tax cut and less on the spending side. so if you're making that argument you have to figure out where was there more than one vote. >> rose: i took that out of the question to get a sense of what would have been done. david, thank you for allowing us to snatch you out of the gym. >> (laughs) thank you, it's casual monday here in washington. >> rose: austan, thank you, good to have you back. >> thank you. >> rose: thank you for joining us. see you next time.

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